Biglari: Focused on creating wealth, not earnings

The Steak n Shake restaurant at the San Antonio International Airport in 2014.

Photo: MARVIN PFEIFFER /EN Communities

Biglari Holdings Inc. got closer to its goal of becoming a “mosaic of businesses,” a description Chairman and CEO Sardar Biglari has used previously with shareholders.

Still, no one is going to confuse Biglari Holdings with Berkshire Hathaway Inc., a multinational conglomerate holding company headed by famed investor Warren Buffett — whom Biglari has been compared with by some Wall Street followers.

Rooted in the restaurant business, with its ownership of the Steak ’n Shake and Western Sizzlin chains and a nearly 20 percent stake in Cracker Barrel Old Country Store Inc., Biglari Holdings this year added the money-losing men’s magazine Maxim and a tiny underwriter of trucking insurance to its stable of companies.

So far, they haven’t had much impact on Biglari Holdings’ bottom line.

In its latest fiscal year, ended Sept. 24, the company earned $28.8 million, or $16.82 a share, on $792.8 million in revenue. By comparison, it earned $140.3 million, or $90.69 a share, on $755.8 million in revenue in 2013. The previous year’s bottom line was boosted by an after-tax gain that resulted from the company moving securities to outside investment partnerships known collectively as the Lion Fund.

But then focusing on earnings would be a mistake, Biglari warned in his annual letter to shareholders — released Saturday in advance of the company’s annual results.

“Our aim is not to create earnings, but to create wealth,” Biglari wrote. “Value is not predicated on an annual figure but on the present value of future cash flows.”

Biglari Holdings is driven by “intrinsic value,” which Biglari explained is “measured by taking all future cash flows into and out of the business and discounting the net figures at an appropriate interest rate.”

As Biglari has said in the past, the company “is no stock for dummies.”

Biglari, through an assistant, declined to comment. He has a policy of not speaking with the media.

Steak ’n Shake still accounts for most of Biglari Holdings’ financial results. The chain had a “decent” 2014, Biglari told shareholders.

Operating earnings at the chain fell to $26.4 million in 2014 from $28.4 million last year, while revenue increased to $765.6 million from $737.1 million. Same-store sales increased 2.9 percent, while traffic rose 2 percent.

All of that appears rather pedestrian compared with the trendy Chipotle Mexican Grill Inc. In the first nine months of this year, the Denver chain’s same-store sales rose 17 percent.

Steak ’n Shake has staked its future growth on franchising. Biglari has said the chain wants to add 1,000 franchise locations, though he gave no timetable for meeting that goal.

In its latest fiscal year, Steak ’n Shake added 20 franchise locations, giving it 124. One opened at San Antonio International Airport.

That’s on top of adding 21 in 2013. At that pace, it will take more than 45 years to reach the goal of adding 1,000 locations.

Biglari Holdings also is pursuing a licensing business for Steak ’n Shake, stamping its name on everything from sweatshirts to license plates to plush toys. It also recently introduced several food products at various retailers; they’re in 2,400 Walmart stores.

In 2012, Biglari Holdings agreed to stop calling itself a “diversified holding company” at the request of the Securities and Exchange Commission. The SEC objected because all but about 5 percent of the company’s holdings were in restaurant operations.

Now Biglari refers to Biglari Holdings as a “holding company” … with “diverse, unrelated concerns.”

Those include Maxim Inc., purchased in February for what sources told the New York Post was between $10 million and $15 million. Maxim, best known for its scantily clad models and Hollywood bombshells, generated just under $10 million in revenue but posted a pretax operating loss of almost $16 million in Biglari Holdings’ latest fiscal year.

Under Biglari Holdings, Maxim has been consuming cash as it tries to produce a turnaround. Besides adding personnel, Maxim has upgraded the quality of its paper, content and photography, Biglari said in his letter.

Biglari said he wants the magazine to depict “sophistication and style” while aiming to become “inspirational and aspirational.” Maxim is getting into the licensing business, too.

Biglari added he expects Maxim will become profitable in 2016, but said he could be wrong.

“The transformation of Maxim will make history or be history,” he predicted.

Meanwhile, results have been better at Biglari Holdings’ other 2014 acquisition. It acquired commercial-trucking insurance underwriter First Guard Insurance Co. of Venice, Florida, three weeks after buying Maxim.

First Guarded generated pretax profit of nearly $1.5 million on $5.3 million in premiums written in 2014.

Biglari said he expects premium volume will increase because it has “materially reduced insurance premiums ceded to our reinsurer.”

Biglari Holdings remains on the lookout for other acquisitions, but Biglari said the company seldom finds companies that meet its criteria.

Company shares rose $15.22, or 4.4 percent, to close at $362.58 Monday. The shares are not widely held, so the company doesn’t have much of a following on Wall Street.